HomeMy WebLinkAbout2016-10-18 Finance Committee Agenda PacketFinance Committee
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October 18, 2016
Regular Meeting
Community Meeting Room
7:00 PM
Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in
the Council Chambers on the Thursday 10 days preceding the meeting.
PUBLIC COMMENT
Members of the public may speak to agendized items; up to three minutes per speaker, to be determined by the
presiding officer. If you wish to address the Council on any issue that is on this agenda, please complete a speaker
request card located on the table at the entrance to the Council Chambers, and deliver it to the City Clerk prior to
discussion of the item. You are not required to give your name on the speaker card in order to speak to the
Council, but it is very helpful.
Call to Order
Oral Communications
Members of the public may speak to any item NOT on the agenda.
Action Items
1.Approval of Fiscal Year 2016 Reappropriation Requests to be Carried
Forward Into Fiscal Year 2017 and Approve Corresponding Budget
Amendments in Various Funds
2.Utilities Advisory Commission Recommendation That Council Adopt a
Resolution Approving a Carbon Neutral Natural Gas Portfolio Plan to
Achieve Maximum Carbon Neutrality Using a Combination of Offsets
and Biogas in the Gas Supply Portfolio by Fiscal Year 2018 With No
Greater Than 10¢/Therm Rate Impact; and Related Termination of the
Palo Alto Green Gas Program
Future Meetings and Agendas
Adjournment
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MEMO
2 October 18, 2016
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA
PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE.
DURING NORMAL BUSINESS HOURS.
Finance Committee Items Tentatively Scheduled
Meeting
Date
Line No. Item Title Referral Date
11/1/2016 1 Utilities Advisory Commission Recommendation that the City Council Approve
Design Guidelines for the 2017 Gas Cost of Service Analysis (Utilities)
11/15/2016 2 Year End Financial Audit (Auditor)
3 Comprehensive Annual Financial Reports (CAFR) (ASD)
4 Year End Financial Report (ASD)
5 Development Services Cost of Study Including Fiscal Year 2017 Fee Proposals
(DEVSVC)
12/6/2016 6 FY18 General Fund Budget - Preliminary Budget Balancing Outline (ASD)
7 Review of Fees for Private Use of Public Streets and Sidewalks (Right of Way)
(Public Works)
Finance Committee Items to be Scheduled
Referral
Date
Line No. Item Title Status
2015 8 Cubberley Center Master Plan: Additional Information and a
Timeline for the Site (requested by the FC) (City Manager)
To be
scheduled in
2016
City of Palo Alto (ID # 7311)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 10/18/2016
City of Palo Alto Page 1
Summary Title: Approval of Fiscal Year 2016 Reappropriation Requests to be
Carried Forward into Fiscal Year 2017
Title: Approval of Fiscal Year 2016 Reappropriation Requests to be Carried
Forward into Fiscal Year 2017 and Approve Corresponding Budget
Amendments in Various Funds
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee amend the Fiscal Year 2017 Budget
Appropriation Ordinance for various funds as identified in Attachment A and various capital
projects as identified in Attachment B.
Background
As a part of the fiscal year-end process, staff reviews the City’s unencumbered and unspent
appropriations of the fiscal year just ended, along with the City’s spending plans. Encumbered
amounts are those subject to the legal claims of other parties due to contractual obligations
(for example, commitments made through purchase orders), which are carried forward from
one fiscal year to the next. However, each year there are a small number of important projects
which staff was not able to complete or encumber funds for. The reappropriation process
allows staff to bring forward funding recommendations to the Finance Committee and City
Council to continue these projects.
On September 22, 2014, the City Council approved a recommendation to amend Chapter 2.28,
Section 2.28.090 of the Municipal Code, reducing the previous two-step reappropriations
process (preliminary and final reappropriation authorization) to one step as long as the
Administrative Services Director certifies that sufficient unencumbered and unexpended funds
are available in the current Fiscal Year to be carried forward to the subsequent Fiscal Year.
Additionally, the City Council amended the Municipal Code to eliminate the provision allowing
for the automatic reappropriation of capital project funds. Previously, the Municipal Code
stated that appropriations of capital project funds should continue until the project was
completed or no funds had been expended for two years. Effective Fiscal Year 2016, the
City of Palo Alto Page 2
Finance Committee reviewed and the Council approved a capital budget which includes all
active projects. Since capital projects may be delayed for various reasons, unexpended funds
are carried forward in two ways from the outgoing to the new fiscal year. As part of the
approval of the Fiscal Year 2017 budget, based on estimates, the majority of unexpended and
unencumbered funds were carried forward from Fiscal Year 2016 to Fiscal Year 2017. Now that
the Fiscal Year 2016 has closed and staff has processed necessary accounting transactions any
unexpended and unencumbered funds for each capital project are reviewed one more time.
Based on that review, staff recommends that for some projects in various funds remaining
Fiscal Year 2016 capital dollars are reappropriated to Fiscal Year 2017. Also, as part of this
review, staff realized that for some projects too much funding was recommended for
reappropriation as expenditures occurred in Fiscal Year 2016. Therefore, this staff report also
recommends reversing a portion of previously authorized reappropriations.
Discussion
As noted above, the changes to the Municipal Code from last year allow for the reappropriation
of unencumbered and unexpended funds in advance of the normal year-end closing ordinance
as long as the Administrative Services Director certifies that sufficient unencumbered and
unexpended funds are available.
Attachment A identifies those operating budget reappropriation requests that staff
recommends for approval, while Attachment B lists recommended capital project
reappropriations. With the submission of this report for Finance Committee consideration, the
Administrative Services Director certifies sufficient unencumbered and unexpended funds are
available in Fiscal Year 2016 to be carried forward to Fiscal Year 2017.
The projects for which operating budget reappropriations are recommended can generally be
grouped into the following categories:
Timing and Workload Delays: Certain projects were delayed due to competing
workload demands, appropriation of funds late in the fiscal year, or other unanticipated
delays. Examples of projects in this category include: Financial Accounting & Reporting
Temporary/Contractual Assistance ($50,000), Budget Software Systems Integration &
Configuration ($100,000), Sales and Use Tax Contract Services ($80,000), Human Service
Resource Allocation Contract Services ($42,000), Community and Public Health
Consultant ($50,000), Fire Emergency Medical Response Equipment ($30,000),
Transportations Management Association Pilot Programs ($100,000), Body Worn
Cameras ($70,000), SB1 Solar Electric (PV) Program Rebates ($300,000), SAP Support
($100,000), Project Safety Net – Trackwatch ($157,000), and Cross-Bore Inspection
Contract ($1,000,000).
Technology Services: Funding was included in Fiscal Year 2016 for technology system
evaluation and upgrade projects but contracts were not awarded by the end of the fiscal
year. Projects in this category include Work Order and Asset Management Application
City of Palo Alto Page 3
Integration ($200,000), Council Chambers AV Replacements ($350,000), and Police
Public Safety Technology ($82,000).
Library Donation and Grant: In early Fiscal Year 2015 the Library was awarded two
grants from the Pacific Library Partnership (PLP): one in the amount of $4,485 to offset
delivery costs for LINK+, an interlibrary loan program for participating organizations; and
a $15,000 grant for the Maker+: A Summer Maker Program to support STEAM (Science,
Technology, Engineering, Art & Math) learning and to foster interdisciplinary exploration
among sciences, art, and social sciences. In addition, in June 2015, the City received a
$320,000 donation from the Palo Alto Library Foundation. The Library has utilized this
funding for the purchase of additional technology, such as tablets, e-readers, and other
devices for staff development and customer instruction; where this action will
reappropriate $90,000 necessary for contractual services to continue workflow
efficiency improvements, provide staff training, and customer service efforts for the
new facilities and products. An additional reappropriation of $110,000 is necessary to
explore and fund technologies that complement the new service platform and aid in
further staff development and customer instruction.
Teen Services Programs: At the June 2, 2014 City Council meeting, the City Council
approved a recommendation from the Policy and Services Committee to use a portion
of the net revenue collected from 455 Bryant Street in Fiscal Years 2009 through 2013 to
fund Teen Programs for Fiscal Year 2015 (CMR #4776). Staff returned to Policy and
Services in the fall of 2015 for Committee Review of the FY 2015 and FY 2016 use of the
Bryant Street Garage Fund for Teen Services and options for a FY 2017 spending plan
(CMR #6167). Teen Services programming includes but is not limited to: makeX, Project
Enybody, Click PA, Ghost Bike, and Ceramics class drop-ins. As a result, this action will
reappropriate $320,380 to continue supporting these programs as well as a sustainable,
long-term approach for Teen Services utilizing Bryant Street funds.
Capital Reappropriations: As discussed in the Background section of this report, starting
with the Fiscal Year 2016 capital budget, all capital project reappropriations require City
Council approval. The FY 2017 Adopted Budget included approximately $79.8 million in
reappropriated funds, across all City funds based on estimates of anticipated spending
in FY 2016. Since the adoption of the capital budget, some adjustments and
refinements to project reappropriations are required since FY 2016 year end actuals and
projects costs have been updated. These primarily reflect either increases or decreases
to assumed reappropriations in the FY 2017 Adopted Budget:
o Additional reappropriations are recommended, as project expenditures originally
anticipated to occur before the end of FY 2016 will now likely occur in FY 2017;
o Downward adjustments in FY 2016 are recommended, as some expenses were
not anticipated to occur until FY 2017 and were therefore reappropriated in the
City of Palo Alto Page 4
budget document to FY 2017. However, the activities were realized in Fiscal Year
2016 and therefore an adjustment to reduce the FY 2017 appropriation is
recommended.
The table on the following page summarizes the recommended net reappropriation
adjustments as detailed in Attachment B. These Fiscal Year 2017 adjustments represent
the final step in the City Council approved change to the reappropriation process. There
are sufficient expenditure savings in Fiscal Year 2016 to support all recommended
reappropriation adjustments.
It should be noted that as a result of the revised process and active review of all project
reappropriations, a reduced level of carryforward from one year to the next is
recommended than by automatically carrying forward all unspent capital funding. As
part of the detailed review of capital projects which started with the development of
the Fiscal Year 2017 Capital Budget and is concluding with the recommendations
contained in this CMR, a total of $0.7 million is being returned to reserves across several
funds that otherwise would have been reappropriated under the prior model, including
$0.4 million in the Capital Improvement Fund.
City of Palo Alto Page 5
Fund
Number of
Projects
Recommended
Reappropriation Adjustment
Capital Improvement Fund 56 ($13,280,195)
Cubberley Property Infrastructure Fund 2 $182,812
Electric Fund 17 ($632,526)
Gas Fund 6 ($472,891)
Refuse Fund 1 $76,502
Storm Drainage Fund 4 ($165,958)
Wastewater Collection Fund 6 ($424,889)
Wastewater Treatment Fund 3 ($110,607)
Water Fund 9 ($1,500,421)
Technology Fund 8 $11,396
Vehicle Replacement and Maintenance Fund 3 ($1,552,882)
Total All Funds 115 ($17,869,659)
Resource Impact
The requested items have been previously reviewed and approved by City Council as part of
annual budget processes. The Director of Administrative Services has certified that sufficient
funds exist for the recommended Fiscal Year 2016 Operating Budget reappropriations
(Attachment A) and Capital Budget reappropriations (Attachment B). Staff recommends $1.3
million in carryover funds in the General Fund, $1.3 million in Enterprise Funds, $0.8 in Internal
Service Funds and $0.2 million in Special Revenue Funds. For capital projects staff recommends
$13.1 million to be reduced from reappropriations assumed in the FY 2017 Adopted Budget in
the Capital Improvement Fund, a net $3.2 million reduction in the various Enterprise Funds, and
a reduction of $1.5 million in the Internal Service Funds.
Policy Implications
This recommendation is consistent with adopted Council policy.
Environmental Review (If Applicable)
The action recommended is not a project for the purposes of the California Environmental
Quality Act.
Attachments:
Attachment A - Operating Reappropriations FY 2016 to FY 2017 (PDF)
Attachment B - Capital Reappropriations FY2016 to FY 2017 (PDF)
Attachment A
Fiscal Year 2016 Reappropriations
Fund Name
Department
Division Title Description
Recommended
Amount
General Fund Administrative Services
Financial Accounting &
Reporting
Financial Accounting & Reporting
Temporary/Contractual Assistance
This action provides funding for temporary and contractual assistance in the Accounting Division. This funding will assist in
addressing capacity issues especially during peak work production times such as year‐end, allow for cross training of staff, and
coverage for vacancies should they arise in both the Payroll and General Ledger divisions. These resources ensure the
Accounting Division is able to complete the preparation of financial records and the comprehensive annual financial report
(CAFR).
50,000$
General Fund Administrative Services
General Billing & Collection
Revenue Collections Equipment This action provides for the purchase of a new safe for the Administrative Services Revenue Collections Division. The current
safe is beyond its useful life and it has become increasingly difficult to find replacement parts to maintain it. This funding was
approved as part of the FY2016 Mid‐Year Budget Review as it is important to ensure this equipment is in good working order
to properly safeguard the City’s assets.
15,000$
General Fund Administrative Services
Office of Management &
Budget
Budget Software Systems Integration & Configuration This action provides funding to clean‐up and finalize system configurations and integrations in relationship to the budget
software, Questica. Over the course of FY2016, the Office of Management and Budget (OMB) saw significant changes in
resources, resulting in delays of the completion of Questica's configurations, primarily the integrations of Questica with other
systems such as SAP and the publishing software. This funding is available due to vacancy savings within OMB who would
have worked on these projects and it will be used to support the completion of these integration projects that were delayed
due inadequate staffing resources.
100,000$
General Fund City Auditor
Performance Audits
Sales and Use Tax Revenue Reporting Errors Contract
(Municipal Services)
This actions provides funding for potential invoices for the City's current sales and use tax audit and information services,
MuniServices. Payments to the vendor are based on a percentage of the additional sales tax revenue actually received by the
City as a direct result of MuniServices detecting and documenting point‐of‐sale or use taxpayer reporting errors and/or
omissions with the State Board of Equalization (SBOE). However, confirmation from the State Board of Equalization have
been delayed due to staffing resource gaps at the SBOE. This funding will ensure the City has sufficient funds appropriated to
process payments to MuniServices once we receive more confirmation of misallocated sales and use tax revenue.
80,000$
General Fund CSD
Human Services
Human Services Resource Allocation Process Reserve Human Services Resource Allocation Program (HSRAP) Reserve: At the June 9, 2014 City Council meeting, the Council
established a $50,000 reserve for the Human Services Resource Allocation Process as part of the Budget Adoption for Fiscal
Year 2015. Since the reserve was funded as a one‐time appropriation and remains unspent through the close of Fiscal Year
2016, this action will reappropriate the reserve balance of $50,000 into Fiscal Year 2017.
50,000$
General Fund CSD
Human Services
Human Services Resource Allocation Process Contracts
‐ Santa Clara Valley Medical & Project Sentinel
This action provides funding for two human services contracts with Santa Clara Valley Medical ($8,494) and Project Sentinel
($33,513). Although the contracts expired June 30, 2016, a few outstanding invoices remain from activities that occurred
prior to June 30, 2016 and funds need to be carried forward in order to complete payment of these outstanding
reimbursement requests.
42,000$
General Fund CSD
Teen Programs
Bryant Street Garage Teen Program This action reappropriates remaining funds in the Bryant Street Garage Teen Program that were previously allocated from the
net revenue collected from 455 Bryant Street in Fiscal Years 2009 through 2013 to fund Teen Programs. Community Services
Staff continues to evaluate the best use of the Mitchell Park Community Center and the Teen Center for the best use of the
facility and programming for Teen Services at the Teen Center and elsewhere throughout the City utilizing the Bryant Street
Funds. The reappropriation of these funds ensures appropriate resources will be available for the provision of Teen Services
as well as for a sustainable, long‐term approach to the delivery of these services.
320,380$
General Fund Fire
Administration
Community and Public Health Consultant This action provides funding for a Community and Public Health Consultant to assess the community health and risk in order
to create preventative intervention programs to reduce the community’s risk from injury, fire or loss as approved in the FY
2016 Adopted Budget. The reappropriation of these funds ensures appropriate resources will be available for consultant
analysis that is critical in helping the Palo Alto Fire Department (PAFD) to identify the City's leading emergency medical issues
and how the Department can intervene to prevent an injury or emergency medical call from occurring.
50,000$
General Fund Fire
Emergency Response
Fire Emergency Medical Response Equipment This action provides funding necessary to outfit two new ambulances with EMS supplies such as medicine; medical supplies
(syringes, gauze, gloves, etc.); life support monitoring devices; and equipment to secure and transport the patients (gurneys,
stair chairs, etc.) as approved in the FY 2016 Adopted Budget. In Fiscal Year 2015, the City's vehicle replacement committee
approved the purchase of two new ambulances through the Vehicle Replacement Fund to increase the Fire Department's
Emergency Medical Service (EMS) fleet to six ambulances and allow for four on duty ambulances and two reserve apparatus
at all times increasing the ability to respond to emergency calls and transport more emergency patients to the hospital. It
takes approximately a year to build‐out an ambulance, including outfitting with EMS supplies, where this funding will ensure
the City has sufficient funds appropriated to process payments that will be due upon delivery.
30,000$
General Fund Library
Administration
Administration Contracts ‐ outreach, development,
and training
This action reappropriates $90,000 for contractual services to improve workflow efficiency, provide staff training, and
customer service improvements for the new library facilities and new products as approved in the FY 2015 Adopted Budget.
As a result of the implementation of the new library service platform and staff’s application of Lean Library Principles to
library operations as well as learning about many other new technologies, these resources are necessary to continue with
services to improve efficiencies as well as support additional outreach efforts and staff development and training.
90,000$
1 OF 4 Finance Committee 10/3/2016
Attachment A
Fiscal Year 2016 Reappropriations
Fund Name
Department
Division Title Description
Recommended
Amount
General Fund Library
Administration
Library Technology Equipment ‐ staff development
and customer instruction
This action reappropriates $110,000 for the acquisition of technology equipment for staff development and customer
instruction. With the implementation of the new library service platform, staff has been devoting time and effort to bring up
the platform to service as approved in the FY 2015 Adopted Budget. In addition, through the implementation of the change
of service platform, library staff has learned about many other new technologies that may be used to work with the new
platform in order to maximize its use. Staff is currently in the process of exploring and experimenting with new technologies
that can most effectively be used with the new service platform. This funding will be used to purchase the selected products
in Fiscal Year 2017. The purchase of these additional elements was anticipated to occur in Fiscal Year 2016, but was delayed
as a result of a broadened effort to find the best solutions to integrate with the enhanced system.
110,000$
General Fund Non‐Departmental
Development and Training
Management Development and Training This action reappropriates $242,000 to continue the citywide management training program that of which $145,000 was
reappropriated form Fiscal Year 2015 to Fiscal Year 2016, and this action consolidates the remaining balance of that funding
with departmental savings from Fiscal Year 2016. Training programs will continue to focus on the following areas: Ethic,
Civics and Citizen Engagement, Leadership and Management, Budget, Finance, Procurement, Interpersonal Communication,
Presentation Skills, Business Writing, Time Management, Project Management, Change Management, SkillSoft (online based
education), and Safety and Security.
242,000$
General Fund PCE
Transportation
Transportation Management Association This action reappropriates $100,000 for pilots and initiatives for the Transportation Management Authority (TMA). This
reappropriation of funds originally approved in Fiscal Year 2016 was recommended as part of CMR #6823, which was
approved by the City Council on June 13,2016. That CMR outlined the potential pilot programs, which include transit
subsidies, carpool subsidies, and low‐income programs. Staff will return to City Council for any ongoing funding needs
associated with the Transportation Management Authority as appropriate.
100,000$
General Fund Police
Administration
Body Worn Cameras This action provides one‐time funding necessary to purchase approximately 90 body worn cameras for sworn Police
personnel on duty as approved in the FY 2016 Adopted Budget. These cameras integrate with and enhance the current in‐car
camera system, which only capture approximately 40‐60 percent of police field patrol interaction with the public. The use of
body worn cameras will assist in criminal prosecution, potentially reduce civil liability, and aid in the review of alleged
misconduct. The Department evaluated available technology in FY 16 and piloted ten (10) test units beginning in June 2016,
where this funding will ensure the City has sufficient funds to complete the procurement and outfitting of officers in FY 2017.
70,000$
Total General Fund Reappropriation 1,349,380$
2 OF 4 Finance Committee 10/3/2016
Attachment A
Fiscal Year 2016 Reappropriations
Fund Name
Department
Division Title Description
Recommended
Amount
Electric Fund ‐
Operating
Utilities
Electric Renewable Energy
SB1 Solar Electric (PV) Program Rebates This action provides funding to fulfill the department's solar photovoltaic rebate obligations. Under the SB1 Solar Electric
(PV) program, the City committed to spend $13 million for solar PV rebates over 10 years, with an average annual cost of $1.3
million beginning July 2007. In FY 2016, $2.0 million was appropriated for rebate payments with $923,795 in rebate
payments paid out. Based on customer's forecasted project completion dates, payments are estimated to reach $1.3 million
for FY 2017. As such, $300,000 needs to be reappropriated from FY 2016 to meet the anticipated rebate obligations.
300,000$
Gas Fund ‐ Operating Utilities
Operations
Cross‐Bore Inspection Contract This action provides funding in contract services required to complete the cross‐bore inspection program. The cross‐bore
inspection program was launched in FY 2012 to ensure there are no natural gas lines are inadvertently installed or cross‐
bored through sewer laterals. Cross‐bores become potential hazards when homeowners make sewer lateral repairs and
inadvertently damage a bisecting gas line. Approximately 13,000 out of over 18,000 sewer laterals in the city were inspected
during Phase I of this program. Phase II is scheduled to begin in FY 2017, and the funding will allow the City's contractor to
begin the inspection of remaining sewer laterals for cross‐bores.
1,000,000$
Total Enterprise Funds Reappropriation 1,300,000$
Stanford Medical
Center Development
Agreement Fund
Community Services
Project Safety Net
Project Safety Net ‐ TrackWatch This action reappropriates $157,000 in expenditure savings as outstanding invoices remain from Cypress Security, the vendor
providing track security services associated with Project Safety Net. This program was initially funded out of an allocation of
funds in the Stanford Medical Center Development Agreement Fund and invoices for services rendered prior to June 30, 2016
remain outstanding due to a year end close timing issue and funds need to be carried forward in order to complete payment
of these invoices. Beginning in FY 2017, these costs have been shifted to the General Fund Police Department.
157,000$
Total Special Revenue Funds Reappropriation 157,000$
3 OF 4 Finance Committee 10/3/2016
Attachment A
Fiscal Year 2016 Reappropriations
Fund Name
Department
Division Title Description
Recommended
Amount
Technology Fund Information Technology
New Technology
Work Order and Asset Management Application This action reappropriates $200,000 in one‐time funding that was provided in Fiscal Year 2016 to migrate the City of Palo
Alto’s existing technology work order management tool. The current tool, Track‐it, is over 10 years old, is past its serviceable
life, and is no longer supported by the vendor. This funding will be used to migrate to a next generation cloud‐based solution
that integrates Work Order Management and Asset Management and will allow for mobile entry of work orders by all city
staff. The migration was scheduled to occur in Fiscal Year 2016, but is anticipated to occur in Fiscal Year 2017 due to project
delays. Ongoing maintenance funding of $40,000 will be incorporated into the development of subsequent budgets.
200,000$
Technology Fund Information Technology
New Technology
Council Chambers AV Replacement This action reappropriates $350,000 in one‐time funding that was provided in Fiscal Year 2016 to replace the current analog
media and recording equipment in the Council Chambers with digital equipment. The current equipment is past its
serviceable life and is past its warranty. The current system has no back‐up and does not have redundancy capability, which
jeopardizes the ability to stream meetings in the Council Chambers and to record them. The upgrade of the equipment was
scheduled to occur in Fiscal Year 2016, but is now anticipated to occur in Fiscal Year 2017 due to project delays. The upgrade
will ensure that the general function of City Council meetings will not be disrupted. Ongoing maintenance funding of $75,000
will be incorporated into the development of subsequent budgets.
350,000$
Technology Fund Information Technology SAP Support This action reappropriates $100,000 in one‐time salary savings associated with vacancies that occurred in Fiscal Year 2016 in
the SAP Functional Team. Due to the vacancies in Fiscal Year 2016, the functional team was unable to address some priority
SAP functionality for departments. This funding will provide funds for contractor hours to address one time needs of
departments such as Human Resources, Planning and Community Environment, and the Fire Department.
100,000$
Technology Fund Information Technology
Project Services
Administration
Public Safety Technology ‐ Police: Mobile Responder
Application and Online Reporting Application
This action reappropriates $82,000 to fund the implementation of two Police Department applications. The Mobile
Responder Application and the Online Reporting Application both provide enhanced functionality to the Computer Aided
dispatch system. The Mobile Responder Application allows field personnel to view and update events and maps, access
databases, and send and receive messages on a smart phone or tablet. The online reporting application facilitates direct
integration to the Records Management System (RMS) from the field, thereby minimizing staff report time and enhancing
service delivery to the public. Ongoing maintenance for these applications will be incorporated into the development of
subsequent budgets.
82,000$
Printing & Mailing
Services Fund
Administrative Services
Treasury
Postage Meter Equipment Replacement This action provides funding for the replacement of the current postage meter equipment and upgrades two components of
postage meters which weigh, stamp the appropriate postage, and fold envelops. Current equipment is over ten years old, has
reached the end of its useful life, and it will no longer be supported by the vendor after December 2016. Funding of $53,000
was approved In the FY 2016 Adopted Operating Budget to fund the purchase of this equipment; however, upon further
analysis, the acquisition of this equipment is now estimated to be $85,000.
85,000$
Total Internal Services Funds Reappropriation $ 817,000
All Reappropriations 3,623,380$
4 OF 4 Finance Committee 10/3/2016
Project ID Project Title Fund
Reappropriation
Adjustment
AC-86017 Art in Public Places Capital Improvement Fund (21,298)
OS-00001 Open Space Trails & Amenities Capital Improvement Fund 4,217
OS-09001 Off-Road Pathway Resurfacing and Repair Capital Improvement Fund 37,029
PE-09003 City Facility Parking Lot Maintenance Capital Improvement Fund 2,780
PE-09006 Mitchell Park Library and Community Center New Construction Capital Improvement Fund 132,223
PE-11000 Main Library New Construction & Improvements Capital Improvement Fund 40,099
PE-12013 Magical Bridge Playground Capital Improvement Fund 41,510
PE-12017 City Hall 1st Floor Capital Improvement Fund (2,545)
PE-13003 Parks Master Plan Capital Improvement Fund 43,987
PE-13008 Bowden Park Capital Improvement Fund 10,114
PE-13012 Structural Assessment Capital Improvement Fund 36,143
PE-13014 Streetlights Condition Capital Improvement Fund 215,000
PE-13017 EC Median Landscape Capital Improvement Fund 8,307
PE-14015 Lucie Stern Building Capital Improvement Fund (2,529,568)
PE-15001 New Public Safety Building Capital Improvement Fund 268,336
PE-15003 Fire Station 3 Replacement Capital Improvement Fund (85,180)
PE-15020 Civic Center Waterproofing Study Capital Improvement Fund 13,000
PE-15028 Baylands Levee Improv Feasibility Study Capital Improvement Fund 157,500
PE-15029 Baylands Interpretive Center Improv Capital Improvement Fund (13,221)
PE-86070 Street Maintenance (General Fund Budget )Capital Improvement Fund (49,632)
PF-00006 Roofing Replacement Capital Improvement Fund 12,253
PF-01003 Building Systems Improvements Capital Improvement Fund 77,417
PF-02022 Interior Finishes Construction Capital Improvement Fund (50,719)
PF-04000 Security System Improvements Capital Improvement Fund 16,577
PF-07011 Roth Building Maintenance Capital Improvement Fund (815)
PF-14003 University Ave Parking Capital Improvement Fund 22,095
PF-14004 Cal Avenue Parking District Capital Improvement Fund (29,600)
PF-15005 Emergency Facility Improvements Capital Improvement Fund 79,353
PF-16003 Parking Lot Elevator Q Modernization Capital Improvement Fund 20,608
PF-16004 City Hall Parking Garage LED Lighting Capital Improvement Fund 20,608
PF-93009 Americans With Disabilities Act Compliance Capital Improvement Fund 191,861
PG-06001 Tennis & Basketball Court Resurfacing Capital Improvement Fund 5,000
PG-06003 Benches, Signage, Fencing, Walkways, Landscaping Capital Improvement Fund (55,451)
PG-09002 Park & Open Space Emergency Repairs Capital Improvement Fund (20,467)
PG-12004 Sarah Wallis Park Improvements Capital Improvement Fund (534)
PG-13001 Stanford / PA Soccer Capital Improvement Fund 2,821
PG-13003 Golf Reconfig & Baylands Capital Improvement Fund (9,490,845)
PG-15000 Buckeye Creek Hydrology Study Capital Improvement Fund (129,113)
PL-00026 Safe Routes to School (Local/Neigh. Coll St. Calming)Capital Improvement Fund (138,922)
PL-04010 Bicycle Boulevards Implementation Project Capital Improvement Fund (627,681)
PL-05030 Traffic Signal Upgrades Capital Improvement Fund (489,175)
PL-11001 Dinah SummerHill Pedestrian/Bicycle Path Capital Improvement Fund (111,541)
PL-11002 California Avenue Transit Hub Corridor Capital Improvement Fund (16,580)
PL-12000 Transportation and Parking Improvements Capital Improvement Fund (131,523)
PL-14000 El Camino/ Churchill Intersection Improv Capital Improvement Fund (106,529)
PL-14001 Midtown Connector Capital Improvement Fund (196,209)
PL-15001 Embarcadero Road Corridor Improvements Capital Improvement Fund (28,129)
PL-15002 Parking Guidance System Capital Improvement Fund (129,724)
PL-15004 Parking Wayfinding Design Capital Improvement Fund (25,524)
PL-16000 Quarry Road Capital Improvement Fund 65,618
Attachment B: FY 2016 to FY 2017 Capital Reappropriations
1 of 3
PO-05054 Street Lights Improvements Capital Improvement Fund (61,539)
PO-11000 Sign Reflectivity Upgrade Capital Improvement Fund 97,525
PO-11001 Thermoplastic Lane Marking & Striping Capital Improvement Fund 7,825
PO-12001 Curb and Gutter Repairs Capital Improvement Fund 30,106
PO-12003 Foothills Fire Management Capital Improvement Fund 7,998
PO-89003 Sidewalk Repairs-GF Capital Improvement Fund (406,041)
CB-16001 Cubberly Community Center Master Plan Cubberley 200,778
CB-16001 Cubberly Roof Replacements Cubberley (17,966)
EL-06001 230 kV Electric Intertie Electric (50,241)
EL-10006 Rebuild Underground District 24 Electric (135,897)
EL-10009 Street Light System Conversion Project Electric 36,468
EL-11003 Rebuild Underground District 15 Electric (307,434)
EL-11006 Rebuild Underground District 18 Electric 104,158
EL-11010 Underground District 47 Electric (432,610)
EL-12001 Underground District 46 Electric (622,315)
EL-13006 Sand Hill/Quarry Road 12Kv Tie Electric (156)
EL-13008 Upgrade Electrical Estimating System Electric (103,650)
EL-14004 Maybell 1&2 4/12 kV Conversion Electric (185,372)
EL-14005 Reconfigure Quarry Feeders Electric (35,469)
EL-15001 Electric Substation Battery Replacement Electric (35,986)
EL-16000 Rebuild Underground District 26 Electric 100,000
EL-16003 Substation Security Electric 48,089
EL-89031 Communications System Electric (1,505)
EL-89038 Substation Protection Electric (10,607)
EL-98003 Electric System Imp Electric 1,000,000
GS-03009 System Extensions - Unreimbursed Gas (7,489)
GS-11002 Gas System Improvements Gas (26,162)
GS-12001 Gas Main Replacement - Project 22 Gas (83,718)
GS-14004 Gas System Model Gas (19,604)
GS-15001 Security at City's Gate Gas (140,942)
GS-80017 Gas System Extension Gas (194,976)
RF-16001 HHWS Collection Facility Improvement Refuse 76,502
SD-06101 Storm Drain System R Storm Drainage (174,472)
SD-10101 Southgate Neighborhood Storm Drainage 10,000
SD-11101 Channing Ave/Lincoln Storm Drainage 5,160
SD-13003 Matadero Creek Storm Wtr Storm Drainage (6,646)
WC-11000 Wastewater Collection Rehabilitation/Augmentation - Project 23 Wastewater Collection (7,066)
WC-12001 Wastewater Collection Rehabilitation/Augmentation - Project 25 Wastewater Collection (67,268)
WC-13001 Wastewater Collection Rehabilitation/Augmentation - Project 26 Wastewater Collection (48,554)
WC-14001 Wastewater Collection Rehabilitation/Augmentation - Project 27 Wastewater Collection (81,328)
WC-80020 Sewer System Extension Wastewater Collection (207,439)
WC-99013 Sewer Manhole Rehabilitation and Replacement Wastewater Collection (13,233)
WQ-04011 Facility Condition A Wastewater Treatment (45,015)
WQ-10001 Plant Master Plan Wastewater Treatment (10,674)
WQ-80021 Plant Equipment Replacement Wastewater Treatment (54,918)
WS-07000 Water Regulation System Improvements Water (135,541)
WS-07001 Water Recycling Facilities Water 2,291
WS-08001 Water Reservoir Coating Improvements Water (304,403)
WS-09000 Seismic Water System Upgrades Water (317,178)
WS-11000 Water Main Replacement - Project 25 Water (725,386)
WS-11003 Water Distribution System Improvements Water (602)
WS-11004 Water Supply System Improvements Water (190)
Attachment B: FY 2016 to FY 2017 Capital Reappropriations
2 of 3
WS-12001 Water Main Replacement - Project 26 Water (18,731)
WS-15004 Water System Master Water (681)
TE-01012 IT Disaster Recovery Plan Technology 25,242
TE-05000 Radio Infrastructure Replacement Technology 100,253
TE-06001 Library RFID Implementation Technology (19,467)
TE-11001 Library Computer System Software Technology (49,620)
TE-11002 Mobile In-Car Video System Replacement Technology (17,261)
TE-12001 Development Center Blueprint Technology Enhancement Technology (16,574)
TE-13001 Interactive Voice Response Technology (543)
TE-14002 Virtual Library Branch Technology (10,634)
VR-14002 MSC Fuel Station Demolition Vehicle (58,651)
VR-15000 Vehicle Replacement FY 2015 Vehicle (1,036,928)
VR-16000 Vehicle Replacement FY 2016 Vehicle (457,303)
Total All Funds (17,869,659)
Attachment B: FY 2016 to FY 2017 Capital Reappropriations
3 of 3
1
City of Palo Alto
MEMORANDUM
TO: Finance Committee
DATE: "October 18, 2016
SUBJECT: Recommended Changes to Approval of Fiscal Year 2016 Reappropriation Requests to be
Carried Forward into Fiscal Year 2017 CMR #7311
Citv Manager Report #7311. Approval of Fiscal Year 2016 Reappropriation Requests to be carried
forward into Fiscal Year 2017 and Approve Corresponding Budget Amendments in Various Funds,
recommends a number of transactions: 1) recommending the carry forward of unspent and
unencumbered funds from FY 2016 to FY 2017, and 2) recommending the co.rresponding amendments
to the FY 2017 budget appropriation ordinances. However, staff recommends adjusting two of these
transactions outlined below based on further review of final financials and an inadvertent calculation
error:
1) Reduce the General . Fund Non-Departmental reappropriation for Management and
Development Training (Attachment A page 2) from $242,000 to $202,000. The previous ·
calculation inadvertently did not adjust for encumbered funds. .
2) Eliminate the Printing and Mailing Fund Administrative Services reappropriation for Postage
Meter Equipment Replacement (Attachment A page 4) from $85,000 to $0. Although there is
sufficient budgeted expense savings, this is an internal service fund, which allocates and
recovers costs based on actual expenses. Therefore, since the costs associated with this
purchase ·were not incurred, they were not recovered through allocated charges and the
processing of this reappropriation would negatively affect the financial position of the fund
balance in this fund. Staff will bring back this recommendation and the associated allocation of
charges as part of the Mid-Year Budget review in order to ensure appropriate expense and cost
recovery during FY 2017.
As a result of these two changes, the total General Fund reappropriation recommended would ·be
reduced from $1.35 million, as outlined in the CMR, t $1.31 million in the General Fund and the total
Internal Services Funds reappropriations would be re u'ced from $817,000, as outlined in the CMR, to
$732,000.
DEPARTMENT HEAD:
CITY MANAGER:
ice~~
City Manager
City of Palo Alto (ID # 7284)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 10/18/2016
City of Palo Alto Page 1
Summary Title: Carbon Neutral Natural Gas Portfolio Plan
Title: Utilities Advisory Commission Recommendation that Council Adopt a
Resolution Approving a Carbon Neutral Natural Gas Portfolio Plan to Achieve
Maximum Carbon Neutrality Using a Combination of Offsets and Biogas in
the Gas Supply Portfolio by Fiscal Year 2018 with No Greater than 10¢/Therm
Rate Impact; and Related Termination of the Palo Alto Green Gas Program
From: City Manager
Lead Department: Utilities
Recommendation
Staff and the Utilities Advisory Commission (UAC) recommend that the Finance Committee
recommend Council:
1. Adopt a resolution (Attachment A) that:
a. Approves the Carbon Neutral Gas Plan, enabling the City to achieve a carbon-neutral
gas supply portfolio starting in fiscal year (FY) 2018 with a rate impact not to exceed
ten cents per therm (10 ₵/therm); and
b. Terminates the PaloAltoGreen Gas program established by Resolution 9405; and
2. Direct staff to develop an implementation plan for the Carbon Neutral Gas Plan.
Executive Summary
The proposed Carbon Neutral Gas Plan will achieve carbon neutrality for the gas supply
portfolio by FY 2018 with a combination of high-quality environmental offsets and physical
“biogas” or “biomethane”. The proposed cost cap to implement the plan is 10 ₵/therm. Based
on current rates, this equates to about a 10% gas rate increase. For the median residential
customer usage, the additional cost of a 10 ₵/therm gas rate increase is about $43 per year.
The PaloAltoGreen Gas (PAG Gas) program was launched in December 2014. PAG Gas is a
voluntary program providing customers with the option to negate the impact of greenhouse
gas (GHG) emissions associated with their natural gas usage by purchasing environmental
offsets. Implementation of a carbon-neutral gas portfolio renders the voluntary program
redundant, therefore, termination of PAG Gas is recommended when implementing the Carbon
Neutral Gas Plan.
City of Palo Alto Page 2
The UAC reviewed the proposed Carbon Neutral Gas Plan on August 31, 2016 and voted to
recommend that Council approve the proposed plan.
Background
City’s GHG Emissions from Natural Gas
Table 1 below, based on data from the 2016 Earth Day report (Staff Report 6754), shows the
estimate for City and community GHG emissions for 1990, 2005, 2012, and 2015.
Table 1
Palo Alto Community and City Greenhouse Gas Emissions (in 000’s of Metric Tons of CO2e)
Emissions Category 1990 2005 2012 2015
Natural Gas Use 194 166 160 135
Electricity Use 186 160 75 0
Mobile Combustion * 332 372 320 330
Other ** 68 54 36 36
Total 780 752 591 501
* Consultant estimate based on population, employment, vehicle miles travelled and
vehicular emission profiles
** Includes landfill, refuse and Regional Water Quality Control Plant emissions
As shown in Table 1, GHG emissions from natural gas use in 2015 were reduced by 4,406 tons
due to the PAG Gas program. The bulk of the reduction in emissions associated with natural gas
use is associated with reduced natural gas use (from 37.2 million therms in 1990 to 30.1 million
therms in 2012 to 25.5 million therms in 2015).
Gas Utility Long-term Plan (GULP) and Early Evaluations of Alternative Gas Supplies
In November 2009, the UAC reviewed an analysis of physical biogas as a resource for the gas
supply portfolio.1 At that time, staff determined that physical biogas cost about 50 ₵/therm
more than natural gas, or about $100 per ton of carbon dioxide equivalent (CO2e)2 and would
increase a residential customer’s gas bill by 35%.
GULP includes a strategy to evaluate a voluntary green gas program and evaluate purchasing
non-fossil fuel gas for the gas portfolio. The City Council last approved updates to GULP in April
2012 (Staff Report 2522, Resolution 9244), including GULP Strategy 4:
Reduce the carbon intensity of the gas portfolio in accordance with the Climate
Protection Plan by:
a. Designing and implementing a voluntary retail program using reasonably
priced non‐fossil fuel gas resources; and
b. Purchasing non‐fossil fuel gas for the portfolio as long as it can be done with
no rate impact.
1 http://www.cityofpaloalto.org/civicax/filebank/documents/17514
2 1 ton/2204.16 lbs * 116 lbs CO2e/1 MMBtu CH4 *1 MMBtu/10 therms = .0053 tons/therm
City of Palo Alto Page 3
In response to the GULP strategies, in April 2013, staff presented alternatives for a PAG Gas
program to the UAC3 including the use of physical biogas for the program, but found that it
would cost about $1 per therm more than natural gas based on responses to a request for
proposal issued by the Northern California Power Agency. In addition, the long-term contracts
required for biogas project developers to secure financing were, and are still, not conducive to
the potentially volatile demand associated with a voluntary green gas program.
PAG Gas
The PAG Gas program was modeled after the highly successful, voluntary PaloAltoGreen (PAG)
program, which allowed participants to receive 100% renewable energy and eliminate the GHG
emissions associated with their electricity use. Participation rates in PAG were the highest
among similar programs throughout the nation earning recognition for the City and creating a
sense of community pride around sustainability efforts. In 2012, approximately 20% of CPAU’s
customers participated in PAG, representing 8% of the City’s total electric usage.
By 2013, the City’s aggressive Renewable Portfolio Standard (RPS) goal combined with its
carbon-free hydroelectric resources rendered the electric supply portfolio largely carbon
neutral. In March 2013, City Council approved the Carbon Neutral Plan committing CPAU to
pursue only carbon neutral electric resources beginning in calendar year 2013 (Staff Report
3550, Resolution 9322). In September 2013, City Council suspended PAG and directed staff to
develop a new voluntary PAG Gas program to afford participants the opportunity to eliminate
the GHG emissions associated with their natural gas use (Staff Report 4041, Resolution 9372).4
In April 2014, City Council approved the establishment of a voluntary PAG Gas program (Staff
Report 4596, Resolution 9405) using high quality offsets to back the program. All offsets
purchased to date have been from a livestock methane capture project. The PAG Gas rate is
12₵/therm, which equates to an avoided GHG emissions cost of approximately $22 per ton of
CO2e.
The PAG Gas program goal is a 20% participation rate by 2020 with a corresponding GHG
reduction of 16,000 tons of CO2e per year. The 2020 goal represents a 10% reduction in the
City’s total GHG emissions associated with natural gas consumption. The reductions are
achieved by purchasing high quality environmental offsets, with a preference for California
projects, on behalf of participants in order to reduce or eliminate the impact of GHG emissions
associated with each participating customer’s gas usage. All customers can sign up for PAG Gas
3 https://www.cityofpaloalto.org/civicax/filebank/documents/33744
4 In June 2014, since the PAG (electric) program is redundant with the Carbon Neutral Plan, Council eliminated the
PAG program for residential customers (Staff Report 4718, Resolution 9422). At the same time, Council also
reactivated the program for commercial customers since some customers (including City facilities) desire to
participate in a voluntary green electric program to achieve environmental recognition and certifications in line
with their own corporate sustainability goals including participation in the U.S. Green Building Council Leadership
in Energy and Environmental Design (USGBC LEED) Program and the U.S. EPA Green Power Partnership Program.
City of Palo Alto Page 4
for their entire gas usage; commercial customers also have the option of participating in the
program for part of their natural gas usage.
Since the program launch in December 2014, roughly 4% of the City’s residential natural gas
customers have participated in PAG Gas accounting for approximately 3,200 tons of GHG
emissions per year. City facilities began participating in PAG Gas in July 2015 and account for
GHG emissions reductions of approximately 6,000 tons per year. For a typical residential
customer participating in PAG Gas, the cost is approximately $5 per month for an average use
of 42 therms per month. After the June 1, 2016 UAC meeting, staff began to evaluate carbon
neutral gas supply options and suspended active marketing of the program, resulting in
decreased participation in the program.
Figure 1 below shows the trajectory of PAG Gas participation for January 2015 through July
2016.
Figure 1: PAG Gas Program Participation
Figure 2 below shows the number of PAG Gas participants by customer type. Figure 3 shows the
percentage of total gas usage by customer type. As shown, the vast majority of participants are
residential customers—as was the case with the PAG (electric) program. The bulk of the
City of Palo Alto Page 5
participation in terms of gas usage is for City facilities. Very few commercial customers have
participated in the program to date.
Approximately 4.1% of the City’s residential natural gas customers have signed up for PAG Gas
as of the end of June 2016. In July 2015 all City facilities began participating in the program for
100% of their gas usage.
Figure 2: Number of Customers Participating in PAG Gas
City of Palo Alto Page 6
Figure 3: Percentage of the City’s Total Gas Load Participating in PAG Gas
Utilities Advisory Commission Discussions
At its October 7, 2015 meeting the UAC heard public comment on, and discussed the merits
and drawbacks of, an opt-in versus an opt-out structure for the voluntary PAG Gas program.
The minutes from that meeting are provided as Attachment B. At its June 1, 2016, meeting the
UAC was presented with an overview and high-level analysis of several options for reducing the
carbon impact of natural gas use in the City including converting the voluntary program to an
opt-out model (meaning all customers would be automatically enrolled in the program, but
could voluntarily leave the program at any time) and adopting a carbon neutral portfolio for all
customers using either environmental offsets or physical biogas. The four main options
discussed by the UAC at its June 1, 2016 meeting are summarized in Table 2 below.
Table 2: Alternatives for Gas Portfolio GHG Reduction
Pros Cons
Opt-in
Program
Consistent with CPAU’s past practices
of providing program and service
options for those who want them.
Allows participants to feel proud that
they are doing more to help the
environment
Requires significant and continuing
outreach effort to maximize
participation—and minimize
administrative costs—by capturing all
customers who would participate in the
program if they knew about and
understood it
City of Palo Alto Page 7
Pros Cons
Opt-out
Program
Much greater reductions in GHG
emissions associated with natural gas
usage could be achieved sooner and
at a lower cost
After start up, easy and low cost to
administer
Risk of harming CPAU’s reputation as the
program can be viewed by customers as
“slamming” or even taking advantage of
customers who are not paying attention
even after being notified of right to opt-
out
Requires ongoing outreach to notify
customers of their ability to opt-out at any
time
Requires development of detailed
program rules and processes to allow for
opting out/in, securing refunds and
identifying potential sources of funds for
such refunds.
Gas
Portfolio
Backed by
Offsets
Maximum reductions in GHG
emissions associated with natural gas
usage
Minimal administrative costs
No need for complicated program
terms and conditions
Could be perceived as an overreaching
mandate
Small rate increase for all customers
Cost varies with the cost of environmental
offsets
Gas
Portfolio
Backed by
Green
Gas
Maximum reductions in GHG
emissions associated with natural gas
usage if for 100% of the gas portfolio
Minimal administrative costs
No need for complicated program
terms and conditions
Could be perceived as overreaching
Large rate increase for all customers,
especially if for 100% of the gas portfolio
Cost varies with the cost of green gas
Opt-In versus Opt-Out Alternative
Staff provided further analysis for the June 1, 2016 UAC discussion comparing opt-in and opt-
out designs including the cost comparison between the two approaches as shown in Table 3.
City of Palo Alto Page 8
Table 3: Opt-in versus Opt-out Program Cost Estimates
Opt-in Program Opt-out Program
Units Current Post-
2020
First Year Subsequent
Years
Participation % of gas
usage
6% 10% 90% 80%
GHG emissions reduced tons1 9,000 15,000 135,000 120,000
Offset Cost $/ton2 9.25 9.25 9.25 9.25
₵/therm 4.4 4.4 4.4 4.4
Administrative cost $/year
$/ton
$120,000
13.16
$85,000
5.66
$400,0003
2.96
$40,000
0.33
₵/therm 7.0 3.0 1.6 0.5
Total Cost
Retail Rate
$/ton 22.46 14.91 12.21 9.58
₵/therm 12 8 6 5
Residential Bill Impact4 $/month 4.32 2.88 2.16 1.80
Notes:
1. GHG emissions based on projected gas usage of 28.5 million therms per year (150K tons CO2e)
2. Offset costs will adjust with market conditions
3. Communication activities and billing system changes
4. Median residential customer gas use: 54 therms in winter month and 18 therms in summer
A comparison of anticipated customer reactions to the two approaches was also presented and
is shown in Table 4.
Table 4: Anticipated Customer Reactions to Opt-in and Opt-out Programs
Customer Opt-In Program Opt-Out Program
Active
Supporter
Participates in PAG Gas Supports, would not opt out
Passive
Supporter
Intend to opt in, but have
not prioritized signing up
Supports, would not opt out
Unaware
Supporter
Would opt-in, but have
not heard about it
Would not opt out
Ambivalent Don’t pay attention, or
care either way
Unlikely to opt out
Unaware
Opponent
Would not opt in Prefers to opt out, but not paying attention to the City’s
messaging or the resulting changes to their utility bills
Passive
Opponent
Would not opt in Doesn’t support the program, but unlikely to prioritize
opting out
Aware
Opponent
Would not opt in Really don’t want to participate but feel guilty or
embarrassed about opting out, especially if the program
is characterized as being environmentally friendly
Active
Opponent
Would not opt in Would opt-out of the program
City of Palo Alto Page 9
UAC Action on June 1, 2016
On June 1, 2016, the UAC discussed the alternatives to continuing PAG Gas as a voluntary opt-in
program and generally agreed that the current opt-in model was the least desired option.
The UAC discussed the incremental cost of biogas and the availability of environmental offsets
and said that, if the long-term goal was to have a carbon neutral gas portfolio, it would not be
advisable to first convert the program to an opt-out program and then move to a carbon
neutral portfolio since it would look like there was an opt-out option, but then that option
would be taken away. One suggestion was to start with a portfolio that is not 100% carbon
neutral and transition to 100% carbon neutral over time. Another suggestion was to start with
offsets first and move to add more biogas over time. However, at the June 1, 2016 meeting,
the UAC was not presented detailed costs for the different alternatives.
One commissioner expressed support for converting to an opt-out program and advised against
introducing a new program that costs more when gas rates are increasing as shown in the long-
term Gas Financial Plan.
At its June 1, 2016 meeting, the UAC voted 6-1 (with Chair Cook, Vice Chair Danaher, and
Commissioners Ballantine, Forssell, Johnston and Trumbull voting yes and Commissioner
Schwartz opposed) to recommend that Council adopt a carbon neutral gas portfolio and direct
staff to develop an implementation plan. The minutes from the UAC’s June 2016 meeting are
provided as Attachment C.
Discussion
To design and implement a carbon-neutral gas portfolio plan, several inter-related variables
must be considered, including:
1. Rate impact.
2. Supply source (environmental offsets or biogas).
3. Timeframe over which carbon neutrality is achieved
4. Percentage of the portfolio to be made carbon-neutral.
With respect to each of the variables above, staff makes the following recommendations:
1. Rate impact: No greater than 10¢/therm annually
2. Supply source: Combination of environmental offsets and biogas, with exact mix
designed to maximize carbon neutrality within established rate impact limit. Staff
estimates approximate ratio of offsets (95%) to biogas (5%) at the outset of the
program.
3. Timeframe over which carbon neutrality is achieved: By FY 2018
4. Percentage of portfolio made carbon neutral: 100%
City of Palo Alto Page 10
Rate Impact
Staff recommends that Council make a clear determination of acceptable rate impact for a
carbon-neutral gas portfolio. Council took such a step with respect to Carbon Neutral Plan for
electricity where rate impacts, for a variety of reasons, were expected to be less significant than
those potential impacts from a carbon free gas portfolio. The rate impact of achieving carbon
neutrality for the electric portfolio is quite small (on the order of 1-2%) because the
incremental cost to get to carbon-neutrality is diminished by the significant RPS requirement
and the fact that carbon-free hydroelectric supplies provide about half of the City’s energy
requirements in a normal year. The rate cap for the carbon neutral electric portfolio established
by Council is 0.15 cents per kWh (Staff Report 3550, Resolution 9322).
By contrast, the costs associated with a carbon neutral gas supply and associated rate impacts
are not likely to be as low. The gas portfolio is currently supplied 100% by a fossil fuel source,
whereas the electric supply portfolio includes a large fraction of carbon-free hydroelectric
supplies and is subject to the State requirement for renewable supplies to meet a minimum of
33% (now 50% by 2030) of the City’s needs. A rate impact of 10 ₵/therm is equal to
approximately a 10% rate increase based on current gas rates and assuming a commodity rate,
which fluctuates monthly with market prices, of 30 ₵/therm.
Supply Source
Offsets as Supply Source
Using environmental offsets to neutralize the GHG emissions of the gas portfolio is significantly
less expensive than buying biogas. If environmental offsets were purchased today for 100% of
the City’s gas usage, all customers would experience a rate increase of approximately 4%. A
residential customer’s winter bill would increase by about $2 per month (about $0.75 in the
summer). A range of potential offset costs were analyzed and are presented in Figure 4 below.
The current cost of offsets is about $8 per ton of CO2e, which is equivalent to 4 ₵/therm.
City of Palo Alto Page 11
Figure 4: Rate and Bill Impact of Using 100% Offsets to Achieve Carbon-Neutrality
Biogas as a Supply Source
Alternatively, the City’s gas needs could be met with renewable physical biogas, a much more
expensive option.
Biogas is a product of organic conversion (from cow manure at a dairy farm or from a landfill,
for example). Most biogas produced in the United States is used as either a transportation fuel
or to generate electricity. Biogas is most valuable as a transportation fuel due to the Federal
Renewable Fuel Standard program and the state regulations like California’s Low Carbon Fuel
Standard (LCFS) and Renewable Portfolio Standard (RPS). Biogas converted to electricity may be
used to meet California’s RPS compliance obligations for electric utilities. State regulation and
pipeline interconnection costs have largely kept biomethane projects out of California, but out-
of-state supply sources are available.
The short-term price for biogas is in the $2-$3 per therm range due to the transportation fuel-
driven demand mentioned above. For a longer-term fixed-price commitment (5-7 years), prices
are discounted to around $1.50 per therm. Two things eliminated the consideration of biogas
for the City’s voluntary PAG Gas program: (1) the cost and the incompatibility between a
voluntary program with uncertain demand; and (2) the biogas project developers’ need long-
term commitments. While cost is still an issue, if it decided to pursue a carbon-neutral portfolio
for the long term, the City would be in a position to make a long-term commitment for biogas.
At a biogas price of $1.50/therm (or $1.20/therm over the projected $0.30/therm cost for
natural gas), supplying 100% of the portfolio with biogas results in about a 120% rate increase
City of Palo Alto Page 12
or about $65 more per month on an average residential customer’s monthly winter bill (or
about $22 per month more in the summer when average residential use is 18 therms/month).
Figure 5 shows both the rate and bill impacts at various biogas prices.
Figure 5: Rate and Bill Impact of Using 100% Biogas to Achieve Carbon-Neutrality
The two supply sources, environmental offsets and biogas, could be combined to achieve
carbon-neutrality. However, even a ratio of 5% biogas and 95% environmental offsets results in
a rate impact greater than 10%. Figure 6 shows the rate and bill impacts for different
percentages of the two supply resources using biogas costing $1.50/therm and environmental
offsets costing $8 per ton.
City of Palo Alto Page 13
Figure 6: Rate and Bill Impact of Using a Combination of Biogas and Offsets to Achieve
Carbon-Neutrality (Assumes $1.5/therm Biogas & $8/ton Offsets)
Carbon Neutrality: Portfolio Percentage & Timeframe
Two other variables may be adjusted when designing a carbon neutral plan. To reduce the cost
impact of buying green gas for the gas portfolio and the GHG emissions reductions only a
portion of the portfolio could be made carbon neutral. Alternately, or in addition, a green gas
portfolio standard could increase over time (e.g. start at 10% in FY 2018 increasing to 100% by
FY 2021).
Figure 7 shows the rate and bill impacts of various biogas to offset ratios if less than 100% of
the portfolio is carbon-neutral. Again, a $1.50/therm biogas price and an $8 per ton
environmental offset price are assumed.
City of Palo Alto Page 14
Figure 7: Rate and Bill Impact of Using a Combination of Biogas and Offsets to Achieve Partial
Carbon-Neutrality (Assumes $1.5/therm Biogas & $8/ton Offsets)
Summary of Proposal
The proposed plan will use a combination of physical biogas and high-quality environmental
offsets to achieve a carbon-neutral gas portfolio by FY 2018. The amount of biogas included in
the portfolio will be maximized while causing rates to increase by no more than 10 ₵/therm.
Given the 10 ₵/therm rate impact cap and current market prices, approximately 5% of the City’s
portfolio can be met with biogas with the remaining 95% neutralized with environmental
offsets.
If the price of offsets increases, the portfolio may need to comprise up to 100% offsets, or the
portfolio may be less than 100% carbon neutral. On the other hand, if the price of offsets
decreases, the proportion of biogas will increase. Purchasing biogas for less than 5% of the total
portfolio demand may be too small for a transaction. In that case, the portfolio will be
comprised of 100% offsets, and the rate impact with be significantly less than 10 ₵/therm.
Cost-effectiveness of a Carbon-neutral Gas Portfolio Compared to Electrification
In May 2015, the UAC reviewed a cost effectiveness study for abating GHG emissions by
electrifying building appliances and passenger vehicles. The report was provided to Council in
August 2015 (Staff Report 5971). Figure 8 shows the societal costs of carbon from that study
compared to the carbon cost of environmental offsets and biogas. The estimated cost of
$1.50/therm for biogas, or an incremental cost of $1.20/therm relative to brown gas, results in
an incremental cost of carbon of $226 per ton of CO2e. Environmental offsets are assumed to
cost $8/ton of CO2e.
City of Palo Alto Page 15
Figure 8: Incremental Societal Abatement Cost
As shown in Figure 8, environmental offsets are a much less expensive way to achieve carbon
reductions compared to most electrification options5. Biogas, however, results in higher
abatement costs than converting from natural gas-fired water and space heaters to electric
heat pump water and space heaters and converting from a gas stovetop to an electric stovetop.
Proposed Biogas and Offset Criteria for Carbon-neutral Gas Supply
Offset Criteria – Same as Approved for PAG Gas
For the PAG Gas program, Council approved the use of high-quality environmental offsets from
protocols approved by the California Air Resources Board. The approved protocols currently
include forestry, livestock, landfill, coal mine methane, urban forestry, ozone depleting
substance and rice cultivation projects. Offsets used for PAG Gas do not need to be certified by
CARB as it is an extra expense and only necessary if offsets are to be used for a regulatory
compliance obligation. Staff proposes to apply the same standards to offsets used for the
Carbon Neutral Gas Plan including a preference for California and local projects (Staff Report
4596, Resolution 9405).
Biogas Criteria – “Displacement” Concept Allowed
Biogas is generated from an organic source such a waste from a dairy farm, other agricultural
waste or from a landfill. Very little biogas is produced in California, but the Environmental
Protection Agency’s (EPA) Renewable Fuel Standard Program is driving the development of
projects in other states. The EPA recognizes two things: (1) molecules of biogas go into the
pipeline and rarely end up being burned by the purchaser of that gas and (2) gas transportation
5 The study concluded that (after federal and state incentives) it is cheaper to own and operate a compact electric
car (Nissan Leaf) than a similarly sized gasoline vehicle (Honda Civic) resulting in a negative incremental abatement
cost.
City of Palo Alto Page 16
can add significant costs if a biogas purchaser is forced to move gas long distances. The EPA,
therefore, allows for “displacement” whereby biogas is purchased at a point near the project
site and the environmental attributes of that gas are attached to brown gas delivered at a
different location. California’s RPS program, on the other hand, requires entities to contract for
gas transportation from the biogas source to the end use, adding significant cost to the gas.
Because the City is seeking ways to reduce its GHG emissions and is not using offsets or biogas
to meet a compliance obligation, the City has latitude to establish its own criteria for biogas use
and eligibility under the City’s carbon-neutral gas supply program. Staff recommends utilization
of the EPA’s approach, which allows for displacement of biogas in one location for brown gas in
another location under the City’s carbon-neutral gas program.
Alternatives
There are many alternatives to the proposed program, which can be described by varying the
key determinants. The following examples are ways in which the plan can be modified.
1. Rate impact: A rate impact higher than 10 ₵/therm would result in more biogas versus
offsets being part of the portfolio. If the rate impact limit was reduced, the portfolio may
not be able to be 100% carbon neutral. As another alternative, the rate impact could
increase over time—for example, starting out at 5 ₵/therm and increasing to 10 ₵/therm in
five years.
2. Supply: The proposed plan includes a combination of biogas and offsets such that the
amount of biogas is maximized while limiting the rate impact to a set amount (10 ₵/therm).
Instead of a rate impact measure, the program could be developed with a prescribed ratio
of biogas to offsets. In this case, the rate impact would depend on the cost of the offsets
and the biogas and could change year to year.
3. Carbon-neutral coverage of the portfolio: The proposed plan uses the full 10 ₵/therm to get
up to 100% carbon neutrality with the expectation that most (95%) of the supply will be
environmental offsets with the balance being biogas. However, the goal could be less than
100% carbon neutral supplies—for example, the goal could be to achieve 50% carbon
neutral supplies while under the 10 ₵/therm rate impact, which would allow for purchases
of biogas for about 8% of the gas needs and offsets for about 43% of the gas needs given
current prices for offsets and biogas supplies.
4. Timing: The most aggressive implementation schedule, by FY 2018, is recommended.
Carbon-neutrality could be staged over any number of years with changing rate impact or
changing proportion of offsets to biogas.
These program attributes could be combined in any number of ways to develop a program as
shown in Table 5 below.
City of Palo Alto Page 17
Table 5: Proposed Carbon Neutral Gas Plan and Alternatives
Rate Impact
Limit (₵/therm)
Expected Supply 1,2 Carbon Neutral
Portfolio Offsets Biogas
Proposed Program 10 95% 5% 100%
Lower Rate Impact 5 100% 0% 100%
Higher Rate Impact 15 90% 10% 100%
No Offsets
5 0% 4% 4%
10 0% 8% 8%
15 0% 13% 13%
25% Carbon Neutral Portfolio
5 21.5% 3.5%
25% 10 17.5% 7.5%
15 13% 12%
50% Carbon Neutral Portfolio
5 47.5% 2.5%
50% 10 43.25% 6.75%
15 39% 11%
75% Carbon Neutral Portfolio
5 73.5% 1.5%
75% 10 69% 6%
15 65% 10%
Notes: 1 Assumes current prices for environmental offsets and biogas
2 Biogas volumes of less than 5% of the portfolio are likely too small to transact
Commission Review and Recommendation
Staff presented the proposed Carbon Neutral Gas Plan to the UAC at its August 31, 2016
meeting. Commissioners asked if the gas that would be neutralized by buying offsets or
replaced with biogas accounts for all the gas the City uses in addition to whatever is leaked
from source to transportation to the distribution system. Staff explained that the gas needs
were determined by what the City buys at the Citygate and it includes any gas leaked in the
City’s gas distribution system, but not any leaks in the gas transportation system or at the gas
source. The greenhouse gas emission calculation is based on accounting for the gas at the
Citygate as if it was 100% burned and not leaked as methane.
Commissioners generally indicated they liked the flexibility of the proposed program since it
provides for a higher amount of biogas as the cost comes down and it supports the
development of a biogas marketplace. Commissioners also discussed whether carbon neutral
gas would dampen the enthusiasm for electrification and asked if carbon neutral electricity has
dampened the penetration of rooftop solar.
After discussion and hearing public comment, the UAC voted to recommend Council approve
the plan (6-1 with Chair Cook, Vice Chair Danaher, and Commissioners Ballantine, Forssell,
Johnston, and voting yes and Commissioner Schwartz voting no). The minutes from the UAC’s
August 31, 2016 meeting are provided as Attachment D.
City of Palo Alto Page 18
Resource Impact
Implementation of a carbon-neutral gas portfolio will increase retail rates (and revenues) and
the gas commodity budget. The recommendation is to cap the rate impact at 10 ₵/therm. At
that level, commodity costs will increase by about $3 million, from $9 million to $12 million, per
year. The retail rate revenue will likewise increase by $3 million. If the program is approved, the
increased cost and revenues will be reflected in the FY 2018 budget request.
A rate increase of 10 ₵/therm will increase rates by approximately 10%. For the median
residential customer using 18 therms per month in the summer and 54 therms per month in the
winter, the bill impact will be $1.80/month in the summer and $5.40/month in the winter, or
about $43 per year.
Policy Implications
The Council-approved Utilities Strategic Plan includes an objective to offer programs to meet
the needs of customers and the community.
Strategy 4 in the Council-approved GULP states:
Reduce the carbon intensity of the gas portfolio in accordance with the Climate
Protection Plan by:
a. Designing and implementing a voluntary retail program using reasonably
priced non‐fossil fuel gas resources; and
b. Purchasing non‐fossil fuel gas for the portfolio as long as it can be done with
no rate impact.
Implementation of a carbon-neutral gas portfolio represents a departure from GULP Strategy 4
because the voluntary program will be eliminated and there will be a rate impact resulting from
non-fossil fuel gas resources being purchased for the portfolio. GULP will need to be revised
accordingly should Council approve a carbon-neutral gas portfolio.
A carbon-neutral gas portfolio would, however, be an important part of meeting Council’s
aggressive goal to reduce the City’s GHG emissions by 80% by 2030.
Next Steps
Several tasks must be completed before implementing the proposed Carbon Neutral Gas Plan.
For example, existing gas purchasing agreements may be used to procure biogas with details
about the biogas added to the transaction confirmations. Environmental offsets for the current
PAG Gas program are included in the City’s agreement with the program administrator, so new
contracts may need to be developed to purchase offsets for the carbon-neutral portfolio. If the
Carbon Neutral Gas Plan is approved by Council, staff will execute enabling agreements with
qualified counterparties for purchasing environmental offsets.
City of Palo Alto Page 19
In addition, new rate schedules will be developed and brought to the UAC and Finance
Committee for recommendations and to the Council for approval. Staff anticipates that this can
be achieved such that the gas portfolio can be implemented in FY 2018.
Because implementation of a carbon-neutral gas portfolio represents a departure from the
Council-approved GULP strategies, GULP will need to be revised before the program is put into
place.
Cancelling PAG Gas will require communication with the customers, repeal of the rate schedule
via resolution, and removal of the charge on participating customers’ bills by the carbon-neutral
implementation date.
Environmental Review
The Council’s adoption of a resolution implementing a carbon-neutral gas portfolio and
terminating the PaloAltoGreen Gas Program does not meet the definition of a project, pursuant
to section 21065 of the California Environmental Quality Act (CEQA). Offset and biogas project
developers will be responsible for performing necessary environmental reviews and acquiring
permits as offset and biogas projects are developed.
Attachments:
Attachment A: Resolution Approving Carbon Neutral Gas Portfolio (PDF)
Attachment B: Excerpted Final Minutes of October 7, 2015 UAC Meeting (PDF)
Attachment C: Excerpted Final Minutes of June 1, 2016 UAC Meeting (PDF)
Attachment D: Excerpted Draft Minutes of August 31, 2016 UAC Special Meeting (PDF)
NOT YET APPROVED
160921 jb JM/Staff Reports
Resolution No.
Resolution of the Council of the City of Palo Alto Approving a
Carbon Neutral Natural Gas Portfolio Plan to Achieve Maximum
Carbon Neutrality Using a Combination of Offsets and Biogas in
the Gas Supply Portfolio by Fiscal Year 2018 with No Greater than
10¢/Therm Rate Impact; and Related Termination of the Palo Alto
Green Gas Program
R E C I T A L S
A. In December 2007, Council adopted the City’s Climate Protection Plan which set
aggressive greenhouse gas (GHG) emission reduction goals to be achieved by the year 2020.
B. In March 2013, this Council approved Resolution 9322 directing staff to achieve
carbon neutrality for the electric supply portfolio by 2013 through the use of a combination of
hydroelectric resources, long-term renewable resources and short-term renewable energy
resources and/or renewable energy certificates (“RECs”).
C. On September 9, 2013, this Council approved Resolution 9372 modifying and
suspending portions of the PaloAltoGreen Program, and directing staff to develop a
PaloAltoGreen Gas (PAG Gas Program) Program.
D. On April 21, 2014, this Council approved Resolution 9405 establishing the voluntary
PAG Gas Program to provide the opportunity for residential and commercial customers to
economically reduce or eliminate the impact of GHG emissions associated with their gas usage
through the purchase of certified environmental offsets.
E. In April 2016, this Council adopted a GHG reduction goal of 80% by the year 2030.
GHG emissions associated with natural gas use were 135,000 metric tons of carbon dioxide
equivalent, or 27% of the City’s GHG emissions, in 2015.
F. The Carbon Neutral Gas Plan uses a combination of physical biogas and high-quality
environmental offsets to achieve a carbon-neutral gas portfolio by fiscal year 2018 by
maximizing the amount of biogas in the portfolio while holding the rate impact to ten cents per
therm (10 ₵/therm).
G. On August 31, 2016, the Utilities Advisory Commission voted 6-1 to recommend
Council approve the proposed Carbon Neutral Gas Plan and terminate the PAG Gas Program.
The Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. The Council hereby adopts the resolution:
Attachment A
NOT YET APPROVED
160921 jb JM/Staff Reports
1.Approving a Carbon Neutral Gas Plan, enabling the City to achieve a carbon-
neutral gas supply portfolio starting in fiscal year 2018 with a rate impact not to exceed ten
cents per therm (10 ₵/therm); and
2.Terminating the PaloAltoGreen Gas program established by Resolution 9405.
SECTION 2. The Council’s adoption of this Resolution, which implements a carbon
neutral gas portfolio and terminates the Palo Alto Green Gas program does not meet the
definition of a project, pursuant to section 21065 of the California Environmental Quality Act
(CEQA). Offset and biogas project developers will be responsible for acquiring necessary
environmental reviews and permits as those projects are developed.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
Senior Deputy City Attorney City Manager
Director of Utilities
Director of Administrative Services
ATTACHMENT B
EXCERPTED FINAL MINUTES OF THE OCTOBER 7, 2015
UTILITIES ADVISORY COMMISSION MEETING
ITEM 2. DISCUSSION: Conversion of the PaloAltoGreen Gas Program From an Opt-In to an
Opt-Out Program
Chair Foster noted that this item is on the agenda due to support for the idea expressed from
members of the community.
Public Comment
Sandra Slater commended the commission for keeping sustainability on the agenda. She said
that it's time to move the needle now. She noted that research shows that participation will be
much higher if the program was converted to an opt-out program. She said that the program
could be changed to make the program supportable by all income levels. Converting the
program to an opt-out program is something the City could do that would have an immediate,
positive impact.
Lisa Van Dusen said that the program is not perfect since it is backed by offsets, but we
shouldn't let the perfect be the enemy of the good. We could pay even more by purchasing
more aggressive offsets. There could be mechanisms to get out of the program during an
"amnesty period" and low income customers on the Rate Assistance Program could be retained
as opt-in customers. She said that there was so much staff effort for the PaloAltoGreen
(electric) program just to achieve 24% participation and that there would be savings from lower
marketing and administration costs in an opt-out program.
Chair Foster said that the money paid by PaloAltoGreen Gas (PAGG) program participants fund
offsets that pay to convert waste into methane that is burned to produce renewable electricity
at a dairy farm in Wisconsin and that this wouldn't be done without the revenue from the
offsets. Assistant Director Jane Ratchye indicated that this is correct. She said that the offsets
that back this program are very high quality as they are selected only from those protocols that
have been certified for use in the state’s cap-and-trade auction by the California Air Resources
Board. One of the requirements of those protocols is that the offset be “additive”, or from a
project that would not have been done without the monetary support from the sale of the
offsets. Chair Foster said that he supports an opt-out program and that the additional cost is
only $5 to $6 per month for the average resident.
Commissioner Ballantine noted that there are ongoing costs to maintain an anaerobic digester.
He said that people who opt-in are causing something real to happen. The greenhouse gas
emissions reductions from those sources would not otherwise happen without programs like
PAGG.
Vice Chair Cook noted that the PaloAltoGreen (PAG) Electric program was effectively converted
to cover everyone via the carbon neutral program and was a great way to transfer the new
goal. He asked why PAGG was not made an opt-out program originally. Vice Chair Cook added
that Community Choice Aggregation (CCA) programs were successful because they were opt-
out programs. Ratchye replied that the carbon neutral electric supply is not the same as PAG
and that it was not developed as a transition from PAG. She noted that PAG purchased
Renewable Energy Certificates (RECs) for 100% of a residential customer’s load at a cost of 1.5
cents/kWh, or about 12% more than the normal electric rate. On the other hand, the carbon
neutral electric supplies consist of about half carbon-free hydroelectric supplies, renewable
supplies that are eligible under the state’s Renewable Portfolio Standard (RPS) and that RECs
are purchased for the balance of the needs. It is expected that by the end of 2016, the City’s
RPS will be 57% and with hydro supplies (given a normal hydro year), no RECs will be needed
for carbon neutral electric supplies. She said that the state’s new goal for an RPS of 50% would
result in carbon neutrality anyway at no additional cost in a normal hydro year. However, the
increased cost of PAGG for participants is 12 cents per therm, or about 12% more than the
normal gas rate of about $1 per therm. She said that the additional cost for PAGG was a
consideration for making the program an opt-in program like PAG when the program was
originally conceived. In addition, the program was just launched in January 2015 (and has yet
to roll out a comprehensive marketing campaign for the program) and staff was hoping to
determine the community’s appetite for the program. Ratchye agreed that CCAs are successful
opt-out programs, but that they are generally no more costly than the alternative from the local
utility so participants are not paying any extra to be “slammed” into a CCA.
Vice Chair Cook said that our rates are allowed to go up with the carbon neutral electric
supplies and asked what the threshold is for an opt-out versus an opt-in program.
Chair Foster replied that the comparison of PAGG to the carbon neutral plan is different—like
apples and oranges—since the carbon neutral electric supplies is not an opt-out, or opt-in,
program, but is the electric supply for all customers. The percentage increase in cost to electric
rate payers by going carbon neutral is small compared to the percentage increase to a customer
by paying for participation in PAGG. He said that PAGG should be compared to the PAG electric
program.
Chair Foster asked if there is any legal reason that City Council could not adopt an opt-out
program. Senior Deputy Assistant City Attorney Jessica Mullan said that a legal analysis would
have to be completed and the answer may depend on the program design.
Commissioner Schwartz asked if the point of the program was to reduce gas use or raise
revenue. Chair Foster responded that neither of those options is the point, but that the
objective is to reduce greenhouse gas (GHG) emissions associated with customers’ gas use.
Commissioner Schwartz said that she agreed that more people will do an opt-out program, but
that we need to make sure that participants truly want to participate. We need to provide a
very easy way for people to opt-out and not be penalized for any of the months they were
enrolled if they don’t want to be. A good outreach campaign could be a good way to increase
awareness of the issue and it could have an impact of increasing customers’ awareness. She
said that the program could be a bridge for people to become more conscious of using energy
and would not just be a way to buy ourselves out of the problem.
Commissioner Hall suggested that we not act too hastily, but develop a program like this over
time, similar to the carbon neutral portfolio adoption. He said that he suspects that there
would be a percentage of consumers that would find out later that they were enrolled in a
“voluntary” program and feel cheated. A way forward could be to develop a carbon negative
plan and start with a surcharge that would fund a solution to global warming. He said it could
be a program that would be broadly advertised to ensure that everyone would be aware of the
program.
Commissioner Schwartz noted that she had seen an effective “cow power” video, which is an
example of how the communication can be done in a playful way that would let people
understand that we are in this together, which is a compelling message for many people. She
added that it would be a good messaging experiment.
Commissioner Eglash thanked the public commenters. He also complimented the UAC for
placing the item on the agenda and allowing this discussion to take place. Commissioner Eglash
said that when he weighs the advantages and disadvantages of opt-in versus opt-out, he would
like to avoid disgruntled customers and any worry about customer satisfaction. The greatest
danger of an opt-out plan is potential customer dissatisfaction. We devote a lot of time to
customer satisfaction with the utility. He said it is more risky in this respect and as the price
becomes significant, the danger becomes worse. He said that, with a full marketing campaign,
is it still plausible that people would not be in the program that wouldn't want to be. He added
that perhaps a very successful campaign would result in the same participation of an opt-out
and an opt-in program. Commissioner Eglash indicated that he is leaning towards maintaining
PAGG as an opt-in program. He added that there should be no action on the item at this time
since there is no staff analysis, no fiscal analysis or legal analysis completed at this time. The
discussion is conceptual at this point; there is no proposed design for an opt-out program.
Chair Foster indicated that he disagrees that the participation rates for opt-in versus opt-out
will converge with a great marketing campaign. He added that this is a discussion item on the
agenda tonight so no action can be done.
Commissioner Schwartz said that customer satisfaction depends on transparency. The fact that
CPAU cares about being green will show that an opt-out program is consistent with the brand.
She added that safeguards to allow folks to opt-out will be consistent with transparency.
Commissioner Eglash said that many people in Palo Alto take pride in the City’s environmental
efforts. He stated that safety, reliability, and low cost are primary considerations and to impose
a greener solution that costs extra money is hazardous and must be done carefully.
Commissioner Ballantine noted that offset resources are finite and that pressures from supply
and demand will eventually bite us as the price for offsets will increase as demand increases.
He added that an opt-out program would require sufficient offsets to be supplied.
Commissioner Danaher said that the PAGG program has an environmental benefit, a
psychological benefit, and a moral benefit. He said that the best idea is to make the program
neither opt-in or opt-out, but our gas supply for everyone. He added that an opt-out program
still allows people to opt-out easily since it could be very easy to go to the website and opt out.
Commissioner Hall said that we could conduct a poll to see what the customers’ response
would be to an opt-out program. He said that we should want to have this information before
making a decision.
Commissioner Schwartz advised against a poll as it would defeat the purpose of communicating
the benefits of an opt-out program. Commissioner Danaher added that the poll would only be
answered by the small number of people who read and respond to email.
Commissioner Foster said that the program could be designed so that anyone who failed to
opt-out early enough could still get their money back. He asked if the UAC could make a
motion to recommend that the Council direct staff to develop an opt-out program. Director
Fong stated that it can be added to the rolling calendar. Mullan added that the item is
agendized as a discussion item and that the Commission can add it as a future item to be
agendized under Item 4 on this meeting’s agenda.
Vice Chair Cook thanked the public commenters. Commissioner Hall added his appreciation of
the input from the public commenters, even if some commissioners disagree.
ATTACHMENT C
EXCERPTED FINAL MINUTES OF THE JUNE 1, 2016
UTILITIES ADVISORY COMMISSION MEETING
ITEM 2. ACTION: Utilities Advisory Commission Discussion on Alternatives to the Existing
Voluntary Opt-In PaloAltoGreen Gas Program Including an Opt-Out Mechanism and a Carbon-
Neutral Natural Gas Portfolio
Senior Resource Planner Karla Dailey summarized the written report.
Commissioner Schwartz asked why is was so expensive just to convert from opt-in to opt-out
since the rate is not being changed. Dailey explained that changes to the billing system made up
the bulk of costs. Dailey pointed out that, after the initial investment, administrative costs drop
significantly for the opt-out program. Commissioner Schwartz stated that the cost estimate
seemed very high and questioned the advisability of making changes to the billing system,
which is planned for replacement.
Interim Director Shikada said the timing of an opt-out program should take into account the
legacy billing system.
Commissioner Trumbull asked about the bill impact. Dailey confirmed the bill impact is only for
those customers in the voluntary program.
Commissioner Ballantine asked about the customer breakdown. Dailey said 50% is residential,
30% is small commercial and 20% is large commercial.
Commissioner Forssell asked about the variability for a typical residential customer. Dailey said
some residential customers probably have much higher bills.
Dailey described the types of customers with respect to an opt-out program structure: active
supporters, passive supporters, unaware supporters, ambivalent customers, unaware
opponents, passive opponents, aware opponents and active opponents. Dailey said staff is
concerned about the customers who would be opposed to an opt-out structure, but do not opt-
out right away for whatever reason leading to resentment and poor customer relations at a
later date as well as issues around refunding the PAG Gas fee should a customer demand that.
Commissioner Schwartz said that bill impact was so small that it shouldn’t cause harm to most
customers and, if it was easy to opt-out, an opt-out program shouldn’t be a problem for
anyone. If there were customers that found out later and were mad, the program could be
designed to allow for refunding those customers. Dailey said that this is problematic.
Commissioner Schwartz said that the risk to consumer attitude seems not to be a large issue.
Continuing with the presentation, Dailey said that another option is to convert all, or a portion
of, the natural gas portfolio to carbon neutral supplies.
Commissioner Johnston asked if there would be any mechanical issues with running biogas
through the pipeline. Dailey said that there would be no problem since biogas must meet the
pipeline quality standards. Commissioner Ballantine added that the quality requirements
depend on whether the gas is used for generation directly, or put in the pipeline—and the
biogas can be mixed with natural gas to meet the pipeline quality standards.
Chair Cook asked how the $1/therm incremental cost of biogas compared to the cost of natural
gas. Dailey said that the current commodity cost of natural gas is about 20 cents per therm.
Commissioner Johnston asked if there were limits to the number of offsets available. Dailey
said that there would be sufficient offsets for our portfolio.
Chair Cook asked staff to describe the offsets. Dailey said that the protocols for the offsets are
all California Air Resources Board approved although the offsets themselves are not CARB
certified. She explained the extra CARB certification would be needed for offsets used for
compliance purposes rather than a voluntary program.
Public Comments
Sandra Slater stated that she and Lisa Van Dusen have prepared a letter with comments on the
issue. She said that she supports the opt-out program, but her favorite is to have the gas
portfolio carbon neutral. She said that climate change is a huge problem and time is getting
short. She said that offset purchases can be a bridge in a plan to purchase biogas. She said that
the success of the PaloAltoGreen program proves that there is large support for such a
program. She also referenced the 80% GHG reduction goal by 2030 Council directive. She
advised that we need to wean ourselves off of fossil fuels and move to electrification. She said
there will be a few people, maybe as many as a hundred, who will be opposed, but a small
number of people should not dictate the direction of the utility. She said that it would be nice
to have local offsets, but supporting methane capture projects outside of Palo Alto is valuable
since we have a global problem.
Lisa Van Dusen said that the main point is that there is fundamental responsibility to take
control of the impact caused. She advised that the City should take a bold action, noting that
nothing is perfect. The goal is to maximize carbon reductions, minimize the potential for
grumbling customers, minimize the impact to ratepayers, and allowing customers to have a
choice. She said that higher gas prices also acts to encourage additional gas use efficiency.
Commissioner Johnston said that the City should move away from the opt-in program design
and advised that it should be easy for customers to opt out of the program.
Commissioner Ballantine supported the option of moving to a carbon neutral gas portfolio,
rather than transitioning to an opt-out program. He said that during the rate adjustment
process, the larger users had a smaller percentage impact than the lower using customers,
which is due to the fixed costs to operate the system. He said that it is not free to have a carbon
neutral electric portfolio. He said that the move to electrification may be problematic if the
electric portfolio is carbon free, but the gas portfolio isn’t.
Commissioner Forssell asked if he program would only apply to residential customers only. She
asked if we first go to an opt-out program and allow customers to opt out, then transition to a
portfolio could be a problem since you first allow them out, then force them in. She said that
we could start with carbon neutral portfolio that is not 100%, but could transition there over
time.
Commissioner Schwartz said that all points of view are represented in Palo Alto. She said that
she is in favor of an opt-out program since this is an opportunity to practice how to do that. If
there is no way to opt out, this could be a problem for some customers who will create a large
issue in the community as it has been elsewhere with respect to having smart meters.
Commissioner Trumbull said he did not opt-in to the current program. He was also concerned
about opt-out as a transition to carbon-neutrality.
Vice Chair Danaher said he stated at the prior UAC meeting on the subject that he was
supportive of a carbon neutral gas portfolio and, after seeing the analysis, he is even more
supportive of that option. Danaher asked if there was any negative feedback for the carbon
neutral electric portfolio. Assistant Director Jane Ratchye said that there was no negative
feedback that she knew of regarding the carbon neutral electric portfolio. Vice Chair Danaher
said that there could be a cost for morality and that he supports moving to a carbon neutral
portfolio rather than moving to an opt-out program.
Chair Cook asked Chief Sustainability Officer Gil Friend whether the choices would support the
City’s carbon goals. Friend noted that natural gas represents 25% of the City’s GHG emissions.
Interim Utilities Director Ed Shikada noted that there was no staff recommendation for this
item and views this discussion as one of values. He said that a survey of the community could
be done to determine the community’s view on the issue.
Chair Cook noted that staff did not provide a recommendation as it usually does and said he
thought that this was appropriate in this case. He stated that we are talking about this at a time
when gas rates are very low and also at a time when rates across the board are rising
significantly this year. He said that he had not heard any protest regarding carbon neutrality for
electric supplies, but says that a transition to carbon neutral gas can start and increase over
time. It would be perhaps most advisable to start with offsets first and move to renewable
biogas over time. He would recommend #3 and move to #4 by 2030. He would like to see the
costs for these options.
Commissioner Schwartz said that the issue with smart meter rollout happened when there
were many missteps caused by a rate increase, very hot weather and the new meters were
blamed. She said that rising rates are not a good time to introduce a new program that costs
more. The downside is that the program could fail spectacularly if it becomes the rallying point
for complaints.
Commissioner Schwartz advised that a survey could be taken to determine the level of support.
Chair Cook said he appreciated the additional options presented by staff. He pointed out that
gas prices are currently very low and rates in the five utilities are increasing. Chair Cook said he
was not prepared to adopt a carbon-neutral program supplied with only biogas. He said the
rate impact would be less than the opt-in or opt-out options for a carbon-neutral portfolio.
Dailey confirmed that administrative costs for the portfolio are near zero. He said he prefers
starting with offsets and slowing adding biogas to the carbon-neutral portfolio. Chair Cook
recognized that there will be some complaints but said the rate impact is low and the impact of
a carbon-neutral portfolio is high.
Commissioner Trumbull stated that he was supportive of having more detail available for a
program before going to Council with a final recommendation.
ACTION:
Vice Chair Danaher made a motion that the UAC recommend that Council adopt a carbon
neutral gas portfolio and direct staff to develop an implementation plan. Commissioner
Trumbull seconded the motion. The motion passed (6-1) with Chair Cook, Vice Chair Danaher,
and Commissioners Ballantine, Forssell, Johnston and Trumbull voting yes and Commissioner
Schwartz opposed.
Vice Chair Danaher left the meeting at the conclusion of the discussion of item #2.
ATTACHMENT D
EXCERPTED DRAFT MINUTES OF THE AUGUST 31, 2016 – SPECIAL MEETING
UTILITIES ADVISORY COMMISSION MEETING
ITEM 2. ACTION: Recommendation that Council Approve a Carbon Neutral Natural Gas
Portfolio Plan to Achieve Maximum Carbon Neutrality Using a Combination Of Offsets and
Biogas in the Gas Supply Portfolio by Fiscal Year 2018 with No Greater than 10¢/Therm Rate
Impact; and Related Termination of the Palo Alto Green Gas Program
Senior Resource Planner Karla Dailey provided a presentation summarizing the written report.
Chief Sustainability Officer Gil Friend said that the Sustainability/Climate Action Plan (S/CAP)
includes a plan to get to a carbon neutral utility and an aspirational goal of a carbon neutral
city. He said that moving to an electrified city will be a long and complex process. He said the
proposed program is a bridge to using less natural gas and that a comprehensive approach
including offsets, biogas, efficiency and electrification will be necessary to achieve the city’s
long-term goals. He pointed out that buying offsets provides capital for more projects in the
U.S. and potentially locally.
Public Comment
Sandra Slater said that proposal is an interim strategy to get to carbon neutrality as soon as
possible and offsets are a good tool to use for the time being. The price signal that the program
cost provides will encourage gas efficiency and electrification of gas appliances. She suggested
the money currently used to market the voluntary program could be redirected to efficiency
and fuel switching programs. Offsets are not a “pass” for consumers as evidenced by the fact
that Palo Altans continue to conserve electricity despite the carbon neutral electric supplies.
Lisa van Dusen said that we must do everything and the beauty of this is that it can be done
now and shows an intention to reduce carbon emissions in the long term. We have policies in
place such as the 2009 proclamation to include environmental externalities and the S/CAP goal
to reduce greenhouse gas (GHG) emissions by 80% by 2030. It may be faulted as not enough or
too much, but it’s a good move in the right direction.
Vice Chair Danaher said that the UAC received a comment from a member of the public who
pointed out the proposed offset purchases do not cover fugitive methane losses from natural
gas production and transportation. Vice Chair Danaher added that methane is as bad as coal
due to the fugitive emissions. Commissioner Ballantine said that that position is not reflected in
any DOE report that he searched for. Commissioner Schwartz agreed that the coal and natural
gas are not considered to be equally bad by industry experts.
Vice Chair Danaher said the proposed program is a good starting point and asked about the
value of purchasing biogas. Dailey confirmed biogas is more expensive than offsets and it is
Council’s prerogative to decide whether biogas is worth including. Commissioner Danaher
asked where the methane comes from. Dailey explained the gas comes from landfills and
agriculture, mainly dairy farms.
Commissioner Ballantine said that if the source is dairy farms, then avoided methane emissions
need to be considered. Dailey explained that offsets are generated by preventing methane
from entering the atmosphere and the resulting biogas is a renewable fuel. A specific project
can produce both offsets and renewable biogas.
Commissioner Trumbull said that the request is fine, but he would like to get off gas as soon as
possible. He suggested that rather than buying biogas, extra funds be used for electrification.
Commissioner Johnston asked about the monthly bill impact of the 10 cent per therm rate
increase. Dailey answered that an average residential customer’s winter bill would increase by a
little more than $5 per month and pointed to a chart in the written report with the detail.
Commissioner Forssell clarified the proposed amount of carbon to be covered by offsets is only
that combusted in town and does not include methane leakage from the production fields or
leaks in the transportation system. Assistant Director Jane Ratchye said leakage in the
distribution system is covered. Commissioner Forssell asked about leakage data, and Ratchye
said we know the difference between purchases and sales, but that some of the difference is
due to mechanical meters operating slowly and not measuring all the gas flow so that the
difference cannot all be attributed to leaks.
Commissioner Schwartz pointed out that the strategic plan says customers should be offered
choices for managing their environmental footprint, but this proposed program does not offer
consumers choices and asked if the strategic objective needs to be changed. Ratchye said that
the supply source is a Council decision similar to the decisions made regarding the composition
of the electric supply portfolio. Commissioner Schwartz disagreed. She said where the
electricity comes from is irrelevant, but if she is being told she can’t have an electric stove, that
is a problem. Ratchye explained again that the proposal is about the gas supply portfolio and
not about electrification.
Commissioner Forssell observed there may be confusion between electrification efforts versus
the proposed carbon neutral gas portfolio.
Commissioner Schwartz asked if we need to change the strategic plan. Interim Director Ed
Shikada said that the strategic plan will be updated.
Commissioner Schwartz said biomethane is not very hard to come by. She said Apple can’t find
biogas to serve its facilities. Dailey replied there is biogas available but very little in California.
She explained that the plan is to get gas elsewhere and displace it in accordance with the
federal renewable fuels rules. She said she has talked to all of the City’s regular gas suppliers
and there is biogas available. She explained the some biogas producers are interested selling a
portion of their production for at a longer term at a fixed price discounted to the spot price in
order to diversifying their sales portfolios.
Commissioner Schwartz said if we are pushing everyone to electrify, we should talk about that
in the future.
Commissioner Ballantine said he likes the flexibility of the proposal that allows more biogas to
be included as it becomes available. Natural gas infrastructure is more resilient than electric
infrastructure. He said that, if and electric outage occurs, it would be a dark day in Palo Alto if
all is electric. He said the proposal is good because it includes biogas at a modest rate increase
while we start to work on initiatives to improve the resilience of the electric grid. He added that
this action helps to support a biogas marketplace and level the playing field for other ways to
get heat, including solar thermal heating. He also noted that energy efficiency and the incentive
to reduce local leaked gas is valued more.
Vice Chair Danaher said he likes the flexibility of the proposal to maximize biogas.
Chair Cook said he likes the staff proposal and appreciates the public comment. He pointed out
Carbon Free Palo Alto’s caution that it will be a distraction from the real goal of electrification
to reduce GHG emissions and might discourage fuel switching. He noted the differences
between the carbon neutral electric portfolio and the proposed carbon neutral gas portfolio
but suggested we test the hypothesis by determining whether the carbon free electricity
dampened the penetration of rooftop solar. He said helping to build a biogas market may lead
to lower prices as has happened with renewable electricity, and this program signals a move
away from the GHG emissions associated with natural gas usage.
Commissioner Schwartz asked if staff has done an analysis of where the electricity comes from
with electric used for heating, positing that additional electric load may cause the use of more
gas to power electric generation. Dailey answered that this proposal has nothing to do with
electric generation or increased electric usage.
Commissioner Ballantine asked if we electrify, would we increase our GHG footprint without
realizing it. Ratchye said that a discussion about electrification will happen at a later date.
ACTION:
Vice Chair Danaher made a motion that the UAC recommend that Council approve a Carbon
Neutral Gas Plan to achieve a carbon-neutral gas supply portfolio starting in Fiscal Year 2018
with a rate impact not to exceed ten cents per them; and terminate the PaloAltoGreen Gas
Program established by Resolution 9405. Commissioner Forssell seconded the motion. The
motion passed (6-1) with Chair Cook, Vice Chair Danaher and Commissioners Danaher, Forssell,
Johnston, and Trumbull voting yes and Commissioner Schwartz voting no.